Recently released figures reveal that lending to small businesses fell in the third quarter of 2011. Image courtesy of: sxc.hu
Lending to small businesses fell in the third quarter of the year, despite signs that the banks will meet the major commitment of the Project Merlin
In February, the four major high street banks – HSBC, Lloyds, RBS, Santander and Barclays – agreed to lend £190bn to businesses in 2011, of which £76bn would go to SMEs with turnover of less than £25m.
Based on recently-released figures from the Bank of England
, the banks will likely meet the major commitment, having lent £57.4bn in the third quarter, taking total lending for the year to £157.7bn. This is 11 percent ahead of the nine-month target.
But despite this success, lending to SMEs in the third quarter was £18.8bn, down from £20.5bn in the second quarter and £16.8bn in the first quarter. This means that total lending to SMEs this year is at £56.1bn, short of the nine-month £57bn target.
The reasons for this shortfall are debated, with banks pointing to weak demand from SMEs and unwillingness among small businesses to take on additional risk in the face of economic uncertainty.
But business groups say the lack of competition in the banking industry is a “major concern,” affecting the cost of credit and terms and conditions of loans offered to SMEs.
Brendan Flattery, CEO, Sage UK
and Ireland, said: "The Q3 Project Merlin lending figures make yet more uncomfortable reading for UK businesses. Banks need to recognise the distinction between simply making credit available and actually making it accessible for small businesses, and must make more attractive propositions to encourage uptake.
“Small businesses are the engine-room of the UK’s economic recovery and questions must be asked why, despite the best efforts of the Government to open up new streams of small business credit, it’s still failing to reach the businesses that need it most. The fact that the amount of credit being accessed in real terms - and indeed the amount being made available - is contracting quarter on quarter suggests that the small business lending landscape is moving in the wrong direction."
John Walker, National Chairman of the Federation of Small Businesses
(FSB) said: “While the banks are on course to meet lending targets to all businesses, they have yet again missed the small business target. We have said that these targets are politically driven and don’t address the lack of competition in the sector, as the main five banks control around 85 per cent of the small business banking market.
"We need to see a clear change: more competition and new lines of credit opening for small firms if they are to help boost the recovery."
Terry Scuoler, chief executive of EEF
, the manufacturers' organisation, said: "The cost of credit and those terms and conditions outside the headline rate remains a major concern, especially for SMEs. These critical factors are not addressed by the Merlin Agreement."